Newbie - Becoming a contractor midway through a tax year.

[danny13]

Ok, my first post, and I've tried to search first!

So my question is .....

I'm about to land my first contract following taking a redundancy as a permie back in June. As a permie with my pay off I earnt just short of the higher tax bracket. I've set up a Ltd company for my contract but was wondering whether it is possible to pay myself zero salary from the company until April next year as obviously I will be taxed at the higher rate. I have seen the recommendations to typically pay min wage up to the tax treshold throughout the year, but no advice on paying zero or maybe an arbitary £1/month.

I will be running it past my accountant once they have been allocated but thought to seek wisdom from the forum first.

[Old Greg]

Ok, my first post, and I've tried to search first!

So my question is .....

I'm about to land my first contract following taking a redundancy as a permie back in June. As a permie with my pay off I earnt just short of the higher tax bracket. I've set up a Ltd company for my contract but was wondering whether it is possible to pay myself zero salary from the company until April next year as obviously I will be taxed at the higher rate. I have seen the recommendations to typically pay min wage up to the tax treshold throughout the year, but no advice on paying zero or maybe an arbitary £1/month.

I will be running it past my accountant once they have been allocated but thought to seek wisdom from the forum first.

IIRC I started contracting in a February and paid no salary until April for precisely this reason.

[GazCol]

Ok, my first post, and I've tried to search first!

So my question is .....

I'm about to land my first contract following taking a redundancy as a permie back in June. As a permie with my pay off I earnt just short of the higher tax bracket. I've set up a Ltd company for my contract but was wondering whether it is possible to pay myself zero salary from the company until April next year as obviously I will be taxed at the higher rate. I have seen the recommendations to typically pay min wage up to the tax treshold throughout the year, but no advice on paying zero or maybe an arbitary £1/month.

I will be running it past my accountant once they have been allocated but thought to seek wisdom from the forum first.

It's impossible to say what the most tax efficient way is of paying yourself without knowing exactly what you've been paid year to date. With that in mind you'll have to go with what your accountant advises you as it's not just a case of potential savings through PAYE but what dividend payments will do to your tax position come self assessment time.

[northernladuk]

You must have done a crap search then lol. This is discussed fairly regularly.

Try using the google search method and play with keywords. Google search method is here...

http://forums.contractoruk.com/welco...uk-forums.html

Try something like 'perm to contract tax'

[Clare@InTouch]

Your fine to not take a salary or dividends if you want to, providing you're outside of IR35.

From April onward your most tax efficient option will then depend on your required income, your long term plans and your other income (rental, interest, foreign etc). Your accountant should be able to talk you through the options and advise on what's best for you in your personal circumstances.

Generally, assuming outside IR35 with no other income, the most tax efficient option is to split shares with your non-working spouse, take dividends up to the higher rate limit, and then leave the rest within the company with a view to eventual liquidation. Make the most of allowances along the way in terms of childcare and pensions too.

[danny13]

Thanks Guys and Girls, and northernladuk.

Reassuring to know, I wondered whether it would be considered tax avoidance or whether there was a minimum salary that must be paid to keep HMRC happy.

Thanks Clare regarding the advise to keep profit within the company and then liquidate, I'd not considered this. Does this offer tax advantages over drawing dividends, so in theory you can withdraw the profit by liquidating every 5 years or something? (Will search the forums now...)

[danny13]

advice

[northernladuk]

Thanks Guys and Girls, and northernladuk.

Reassuring to know, I wondered whether it would be considered tax avoidance or whether there was a minimum salary that must be paid to keep HMRC happy.

Thanks Clare regarding the advise to keep profit within the company and then liquidate, I'd not considered this. Does this offer tax advantages over drawing dividends, so in theory you can withdraw the profit by liquidating every 5 years or something? (Will search the forums now...)

For information on liquidation look for 'closing limited company' and MVL. These will have the details of how it works

BUT also search for phoenixing. Closing your company to re-open it to make use of tax breaks and no other business reason is something to be avoided.

[malvolio]

Thanks Guys and Girls, and northernladuk.

Reassuring to know, I wondered whether it would be considered tax avoidance or whether there was a minimum salary that must be paid to keep HMRC happy.

Thanks Clare regarding the advise to keep profit within the company and then liquidate, I'd not considered this. Does this offer tax advantages over drawing dividends, so in theory you can withdraw the profit by liquidating every 5 years or something? (Will search the forums now...)

Before you get carried away worrying about long term tax optimisation, stick with learning the job and making sure you understand it properly. A good start is getting your head around how best to pay yourself and how the tax system works. You have no idea how much you don't know.

Leave the clever stuff alone for a year or two until you know what you're doing and what the risks are.

[northernladyuk]

Thanks Guys and Girls, and northernladuk.

He's got your number, love!